3 Apple suppliers that should surprise on earnings

The pundits are in lather about an Apple mini-correction when the much more interesting story is that Cupertino and Samsung are in settlement talks. For a company as unforgiving as Apple to want to settle legal skirmishes underlies just how important their suppliers are. That’s why I’ve been buying Apple suppliers and lessening my portfolio’s reliance on Apple itself.

If there’s one music service that really vexes Apple, it’s Spotify. The frenzy for an invite when it launched stateside reminded me of Gmail’s rollout. Apple is definitely terrified that Spotify becomes a backbone for other kinds of entertainment, retrieved on demand from the cloud, bypassing the itunes and iOS ecosystem. Spotify’s announcement of a branding deal with Coca-Cola is just another way to get as many consumers as addicted as possible.

So I’m betting that Apple will spend more heavily than ever to beef up its networking infrastructure (and will run them with as much power as they need, no matter the environmental criticism). Apple already has two multibillion dollar data centers in the pipeline, one in North Carolina and one next to Facebook’s in Oregon. All that capex is starting to show dividends; itunes match, while probably two quarters from being a finished product, is getting some good initial buzz from artists.

Juniper Networks, Inc.
/quotes/zigman/202982/quotes/nls/jnprJNPR makes the routers and switches and networking equipment that power the Cloud Revolution. Their M-series routers are an industry standard and its highly likely that Apple is purchasing their equipment by the pallet. And the sentiment around Juniper is so negative (it’s only up 3.6% this year while the S&P is up 10%, and it’s down 44% over the last year), that any little surprise could send the stock soaring.

Broadcom Corporation (NASDAQ:BRCM)

Earnings call: May 1, 2012

Broadcom
/quotes/zigman/66924/quotes/nls/brcmBRCM is one of the most important chip suppliers to Apple. They have a piece of the iPhone 4s and iPad 3 (whatever, that’s what I’m calling it) and if Apple launches a 4G MacBook line, they’ll turn to Broadcom for a wireless chipsets.

While the stock has crushed the market YTD (25% vs 10% for the S&P) it’s actually down over the last year, losing 4% while the broader market is up 5%. So I think it has room to run from here, maybe 10%-12% in the short term on a big earnings number. Remember, in 2000 Broadcom was at 178, for a market cap of more than $100B. While I’m not saying BRCM is headed back to the stratosphere, the market will fall more in love over time, and its earnings multiple should start to look more like ARM Holding’s. Look for lots more analyst upgrades to follow Credit Suisse’s target bump to $50.

Molex Incorporated (NASDAQ:MOLX)

Earnings call: Apr 25, 2012

This is one of the least sexy companies you’ll ever own. Molex
/quotes/zigman/75582/quotes/nls/molxMOLX doesn’t make chips or primate glass or Tupac holograms. It makes the electric connectors that hold all that stuff together. And while it is up 13% this year I feel good about recommending it. Gross margins are healthy and stable at 30.6% and companies like Apple couldn’t get rid of Molex even if they wanted to. Buying Molex gets you about 3% dividends and management that buys backs stock when the price falls.

Why I’m really looking at the name though is I think Wall Street’s analysts are about throw Molex into the coverage game. Right now 13 analysts cover Molex, which means we don’t have to wait for them to discover the stock; it’s already on their radar. The average price estimate is $27.65, which is pennies from where the stock is at. I think the herd is going to have to bump their full year estimates up after earnings, their average Q1 revenue prediction of $848.32M strikes me as low. I’m not saying that Molex will blow that out, but iPad3 demand should be a nice boost that isn’t priced into the stock. And I expect at least a couple of the analysts at smaller shops to move from ‘hold’ to ‘strong buys’, or whatever particular Wall Street language they use.

To find out which Apple Suppliers are on my Top 10 List, be sure to check out the book for $20 or sign up for Revolution Investing where we’re giving the book away in five weekly installments.

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